ECON 111 Study Guide - Fall 2018, Comprehensive Quiz Notes - Payroll Tax, Economic Inequality, Insulin

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Queen's University
ECON 111
Introductory Microeconomics
Quiz
Fall 2018
Prof. Ugurhan Gazi Berkok
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Econ 111- Sept 10
What is economics?
Analysis of opportunity cost- one chooses A over alternatives B,C, and D where the best
amongst [B,C,D], say D is the most valuable opportunity. To have A one has to give up D. D is
then the opportunity cost of A.
Example:
The study of scare resources to satisfy unlimited human wants (can be land, or produced like
human and physical capital); considered incomplete because to does not look at what happens
behind the scene (production ect).
Can be imperialistic; economics can predict human decisions, and then test the predictions wit
empirical analysis. For example, marriage markets/assortative mating based on education and
high salary; when the most educated people marry each other household income inequality
goes up.
How economics works
Normative Economics- consists of “ought to” or “should” statements
Positive Economics- “if… then” statements; thus positive economics leads itself to empirical
testing by identifying the “if” conditions to subsequently find out whether the “then” has
materialized
Economic Analysis develops framework by specifying:
1. Decision makers motives e.g. what would a consumer do, what would a bureaucrat aim at,
what would the PM like to do ect.
2. The physical relations underlying environments where decisions are made e.g. production
relations, conditions for consumers such as the distance to a major store
3. Causal links (if…then) to be tested e.g. increased government expenditures will create jobs,
a higher payroll tax will lower employment
4. Distinction between the framework’s simplifying vs restricting assumptions; e.g. the
framework may be simplified by reducing the number of similar goods in the framework
without undermining finish later
Gains from trade
Produce more of A you do well with time released from reducing production of B you don’t do
so well (specialization)
Sell extra production of A to buy B you no longer produce (trade)
Example: people used to grow all their veggies& fruit and even have chicken coops, but time are
different now. Why have we moved away from self sufficiency over time??
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